In a perhaps not so surprising announcement for the UK property market, the average UK annual house prices have recorded their first drop in over a decade. Zoopla’s latest house price index reveals that in September 2023, property prices were 0.5% lower than the same month the previous year, marking the first annual decline since 2012. The average property price across the UK now stands at £265,100, and this downturn is largely attributed to the impact of higher mortgage rates.
Mortgage Rates Take a Toll On UK Property
One of the key factors contributing to this decline in property prices is the increase in mortgage rates. According to Zoopla’s report, the biggest lenders in the UK are now offering an average mortgage rate of 5.1% for a 75% loan-to-value (LTV) 5-year fixed term mortgage. This rate is almost one percentage point higher than the 4.2% rate that was being offered just a few months ago in the spring of 2023. Driven up mostly due to bank’s reactions to inflation and the Bank of England increasing the base rate.
The rise in mortgage rates has had a significant impact on the buying power of the average household. Zoopla found that the average mortgage household’s buying power has decreased by 20% compared to the beginning of 2022. With higher mortgage rates, potential buyers are finding it more difficult to enter the market, and this has led to a decrease in property demand. An independent report by The Times this week claimed that the number of first-time buyers alone this year will likely fall by more than a fifth. Not to mention the amount of home movers opting out of purchasing too.
Sellers Facing Challenges
The increase in mortgage rates and reduced buying power have made it more challenging for sellers to achieve their asking prices too. Over the summer months, there was a notable increase in the average discount to asking prices on properties, which reached 4.2% or an average of £12,125 off the original listing price. All you need to do is look on Rightmove for yourself in your area to see how frequently properties are being re-listed with significant discounts or reductions.
The Year-End Outlook
Zoopla’s report suggests that the year 2023 is likely to conclude with property prices being 2% to 3% lower than they were at the beginning of the year. Despite this decline, property values remain significantly higher, with prices still up by 17% compared to the start of 2020. This indicates that the property market has experienced a period of sustained growth prior to the recent downturn.
As has been the case in recent years, there continues to be a clear North-South divide in terms of house price inflation. The cheaper Northern regions of the UK are still experiencing growth, with property prices falling most sharply in the South East and East of England, down 1.5% compared to the previous year. In contrast, Scotland, the North of England, and Wales have witnessed rising property prices.
Scotland stands out in Zoopla’s report as it has seen the highest annual house price growth of 1.6%. Notably, prices in Scotland remain significantly below the UK average, making it an attractive market for buyers. Local areas in Scotland such as North Lanarkshire, South Lanarkshire, Clackmannanshire, Falkirk, Stirling, Mid Lothian, and West Lothian have recorded substantial property price growth, showcasing the diverse nature of the Scottish property market.
Regional Differences In The UK Property Market
The report also highlights regional disparities in property prices, with the top 10 cheapest places to buy largely remaining unchanged. East Ayrshire, Scotland, continues to be the most affordable location with an average property price of £101,500. In contrast, London and the South East of England retain their status as the most expensive places to purchase property, despite experiencing a 0.9% decline in house prices. Kensington and Chelsea and the City of Westminster still command average property prices exceeding £1 million.
Speak To A Property Professional
While the recent annual decline in UK property prices may raise concerns for homeowners and property investors, it’s important to consider the broader economic context, including fluctuations in mortgage rates and regional disparities. The property market has demonstrated resilience in the past, and it will be interesting to see how it adapts to the evolving financial landscape in the coming months. If you or anyone you know has concerns about mortgages or property, then please feel free to give our team of financial advisors a call today. We are here to help.